Kospi index in South Korea is stumbling after huge gains
After a 22% plunge from its all-time high in June, the KOSPI has entered technical bear market territory
On June 19, the Kospi KR:180721 peaked at 9385 and was showing a return of 122% for the year. Come July 8 and South Korea's benchmark index has entered technical bear market after closing down 5% Wednesday, bringing its peak-to-trough slump to 22%.
Why has it fallen? Gravity is the main reason. After almost quadrupling from May 2025, the temptation to book profits had become irresistible.
International investors have been selling for most of the year and Citi's fund flow insights published July 3 noted outflows of $11.7 billion the week before. Much of the impetus for the continued ascent of Korean stocks came from heavy participation of domestic retail investors - better known as "ants'"- many of whom were using leverage to gain exposure.
The vast majority of index gains were contributed by the two index heavyweights, Samsung Electronics (KR:005930) and SK Hynix (KR:000660), who between them comprise half of the Kospi. Despite stellar earnings from both, concerns have surfaced in recent weeks about the sustainability of the semiconductor cycle and the issuance of up to $29 billion of new SK Hynix equity - via the listing of a depositary receipt on Nasdaq this Friday - has also absorbed a lot of demand.
There are other factors at play. A few weeks back, South Korean regulators expressed concern about the use of excessive leverage by retail investors, particularly through leveraged exchange -traded funds offering several times the return of the Kospi. Samsung Electronics was obliged to offer employees windfall payments to prevent industrial action. The Philadelphia Semiconductor Index SOX has also nosedived 16% from June's high and the U.S.-listed Roundhill Memory ETF DRAM DRAM, whose top holdings are SK Hynix and Samsung, tumbled 6% Tuesday and is indicating another 4% in premarket trading Wednesday.
Sentiment has also been dented by news that the Chinese AI platform DeepSeek is planning to develop its own chips, in response to the tightness of supply, an initiative to reduce its reliance on Nvidia (NVDA) chips and the increasing costs of the cutting-edge, high-bandwidth products. Elsewhere in China, a state-backed semiconductor company, ChangXin Memory Technologies has recently attracted attention as Apple $(AAPL)$ began testing its chips as part of its plans to extend and diversify its supply chain.
None of these narratives on its own is probably sufficient to justify the correction witnessed of late - and Samsung's preliminary results announced Tuesday bolstered analyst opinion if not traders' - but when share prices have increased so much, the cumulative impact is to sap energy from the market.
Upcoming catalysts for the Korean market as a whole and the memory chip makers in particular are the SK Hynix ADR listing Friday, while both SK Hynix and Samsung will release second-quarter earnings at the end of July.
As Kospi declines but earnings continue to be upgraded, the market is becoming cheaper. According to FactSet, the index now trades on a price-to-earnings multiple of just 7.6 times for the next twelve months. Compare this to the multiple for emerging markets EEM as a whole - 12 times - and the S&P 500 SPX on 20 times December 2026 earnings.
(END) Dow Jones Newswires